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Substantial fiscal spending initiatives and changes the trajectory of the budget could increase downward pressure on Australia’s AAA  rating and outlook for Australia, ratings agency S&P said on Wednesday.  

Key quote

While spending initiatives are likely to support the economy, they’re also likely to weaken Australia’s fiscal flexibility to respond to future unforeseen economic shocks.

Australia’s second-quarter growth rate was the lowest since 2009. The Reserve Bank of Australia (RBA) sprung into action earlier this year, cutting rates by 25 basis points in June – the first rate cut since 2016.  

The central bank then delivered two more rate cuts – one in August and another one in October. Currently, the official interest rate stands at a record low of 0.75%.  

Markets are worried that RBA may end up hitting the zero lower bound next year. With S&P warning against fiscal imprudence, it appears the RBA will have to continue doing the heavy lifting.